Benefits for small companies under companies Act, 2013

Before filing of annual return of any company we should know some key points like:

♣ what the status of our company

♣  what benefits/Exemptions available for our company

There are some Benefits / exemptions for small companies that every Stakeholder should remember before filing of annual return of their company.

Definition of Small Company:-

As per section 2 (85) of Companies Act, 2013

“Small company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than *ten crore rupees and**

(ii) Turnover of which *** [as per profit and loss account for the immediately preceding financial year] does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than **** [one hundred crore rupees]

But following companies are not falls under the category of small company even though they comply above 2 conditions 

• a holding company or a subsidiary company;
• a company registered under section 8 of Companies Act, 2013
• a company or body corporate governed by any special Act;

In simple language we can say that when a Private company satisfies following conditions then company will cover under the category of small company:

• Paid up share capital of private company shall not exceed 50 lakh rupees and
• the turnover of the company shall not exceed 2 crore rupees

Because of any reason if in the next year company cross the above prescribed limit either for paid-up capital or turnover, company will not cover under the category of small company and company needs to give up all the Benefits / exemptions get under the small company category.

Benefits / exemptions for small company

• Board Meetings: – Small companies doesn’t have a wide range of business so it’s not required for small companies to hold 4 board meetings in year, small companies may hold only 2 board meetings in a calendar year, i.e. one Board Meeting in each half of the calendar year with a minimum gap of ninety days between the two meetings.
• Rotation of company auditors: –It is not necessary for small companies to follow the condition laid in Section 139(2) of the Company Act 2013, which mandates the rotation of auditors every 5 years (individual auditors) and every 10 years (firm of auditors).
• Exemptions for Board’s Report: – Matters to be included in Board’s Report mention in Rule -8 of companies (Accounts) Rules, 2014 not apply for small company.
• Annual Return: – Annual Return of a Small Company can be signed by the company secretary alone, or where there is no company secretary, by a single director of the company.
• Remuneration details in Annual Return : – As per section 92 of companies Act, 2013 private companies are require to give a details of remuneration of directors and key managerial personnel , but in small companies only “aggregate amount of remuneration drawn by directors”  is required in annual return.
• Cash Flow Statement: – A small company needs not to include Cash Flow Statement as part of its financial statement.
• Exemptions for Audit Report: – small companies are not required to give report on internal financial controls with reference to financial statements and the operating effectiveness of such controls in audit report.
• Lesser penalties for Small Companies under Section 446B of the Companies Act, 2013: – If a small company fails to comply with the provisions of section 92(5), section 117(2) or section 137(3), such company and officer in default of such company shall be liable to a penalty which shall not be more than one half of the penalty specified in such sections.

 *Substituted by the Companies (Amendment) Act, 2017 :- Effective from 7th May 2018

 In clause (85), in sub-clause (i) for the words “five crore rupees” the following words shall be substituted, namely:-“ten crore rupees”

 **Substituted by Companies (Removal of Difficulties) Order Dated 13th Feb 2015.

In section 2, in clause (85), in sub-clause (i), for the word “or” occurring at the end, the word “and” shall be substituted.

***Substituted by the Companies (Amendment) Act, 2017:– Effective from 7th May 2018

In clause (85), in sub-clause (ii), for the words “as per its last profit and loss account” the following words shall be substituted, namely: – “as per profit and loss account for the immediately preceding financial year”

****Substituted by the Companies (Amendment) Act, 2017:- Effective from 7th May 2018

In clause (85), in sub-clause (ii) for the words “twenty crore rupees” the following words shall be substituted, namely:-“one hundred crore rupees”

(Author Name – CS Jitendra Sharma, JITENDRA S & ASSOCIATES Company Secretary in Practice from Kota (Rajasthan) and can contact at pcsjsandassociates@gmail.com )